SHOWDOWN COMING IN MEXICO OVER PRIVATIZATION

part one

by David Bacon

In the 1930s and 40s, General Lazaro Cardenas made nationalization of economic resources and land reform symbols of Mexican national sovereignty. Nationalist economic development, however, was overthrown as the bedrock of the country's economic strategy when technocrats took power in the former ruling Party of the Institutionalized Revolution in the 1970s. Today the Mexican economy looks nothing like it did 20 years ago. Well before passage of the North American Free Trade Agreement, the disparity between US and Mexican wages was growing. Mexican salaries were a third of those in the US up to the 1970s. They are now less than an eighth, according to Mexican economist and former Senator Rosa Albina Garabito. In some industries they've dropped to a 12th or 15th--even during a period of relative decline in US wages.

In two decades the income of Mexican workers lost 76 percent of its purchasing power, while the Mexican government ended subsidies on the prices of basic necessities, including gasoline, bus fares, tortillas and milk. The govenment estimates that 40 million people live in poverty, and 25 million in extreme poverty.

These results are the product of the imposition of neoliberal economic reforms. In the last two decades Mexico has become their proving ground, as the International Monetary Fund and World Bank used the leverage of foreign debt to require massive changes in economic priorities designed to encourage foreign investment. The heart of those changes has been privatization of Mexican state enterprises. Those put on the auction block include the airlines, ports, railroads, banks, phone system and whole sections of formerly state-owned industries.

The impact on workers has been devastating. A majority of Mexican industrial workers worked for the government until the transformations started in the 1970s. Its organized labor movement had its greatest strength in the state sector. While three-quarters of the workforce in Mexico belonged to unions three decades ago, less than 30 percent do so today. In the state-owned oil company, PEMEX, union membership still hovers at 72 percent. But when the collateral petrochemical industry was privatized over the last decade, the unionization rate fell to 7 percent. New private owners reduced the membership of the railway workers union from 90,000 workers to 36,000 in the same period.

Resistance to privatization has often been fierce. Soldiers had to occupy the port of Veracruz at gunpoint in order to privatize it and fire its workforce. Mexico City's bus drivers fought the selloff of the Route-100 company for three years, including one in which their union leaders were imprisoned. Wildcat strikes hit the railfroads when they were sold to Grupo Mexico, and copper miners fought a valiant battle against job reductions when the Cananea mine was bought by the same owners in the late 1990s.

While these resistance efforts were defeated, one of the government's most important privatization schemes has consistently been held at bay--the selloff of the electrical system.

Controversy over the rapid growth of private power generation in Mexico boiled over this year, as President Vicente Fox introduced legislation to privatize the industry. A former CocaCola executive, Fox is allied with the industrialists of Monterrey and their US energy partners. His proposals carry the blessing of the World Bank and the IMF, who have been mandating the privatization of Mexican industries for over a dozen years. And Fox's direction is supported by another powerful Texan, who now occupies the White House, US President George Bush.

It is an impressive transnational constellation of political power. In the US, similar corporate forces have steamrolled over ratepayers, unions and regulators, in a successful effort to open power generation to the free market, in state after state. Mexico, however, has something, which the US doesn't, that so far has been able to stop these proposals in their tracks--the Mexican Electrical Workers Union, the SME. At the end of September, the union and its allies brought 50,000 people into Mexico City's main square, the Zocalo, in protest over Fox's privatization plans. The union vowed to distribute 10 million leaflets nationwide urging opposition.

It wasn't the first confrontation between the union and the forces of neoliberal reform. Fox's predecessor, Ernesto Zedillo, also proposed privatizing electricity in 1999. The union formed the National Front of Resistance to the Privatization of the Electrical Industry, collected 2.3 million signatures on petitions in three weeks, and brought a million angry capitalinos into the streets.

Zedillo was defeated, the first time a privatization initiative in Mexico had not succeeded.

In Mexico, two state-owned power companies provide electricity. The Federal Electrical Commission (CFE) brings power to all of the country except Mexico City and part of central Mexico, which is supplied by the Power and Light Company. Each entity has a separate union as well. The SME at the Power and Light Company is one of the country's oldest and most democratic labor organizations.

Under then-general secretary Rafael Galvan, the union for workers at the CFE, the Sole Union for Electrical Workers of the Mexican Republic (SUTERM), led the movement to democratize the country's unions two decades ago. The government seized control of it, however, and its latest leader now also heads the main government-affiliated labor federation, the Congreso de Trabajo.

The SME warned that the Fox plan would bring about the immediate bankruptcy of both companies (another hauntingly familiar prediction to Californians). Small users would have to shoulder all of the expenses of maintaining the transmission grid and the distribution system, while the existing companies would lose most of their revenue. The leftwing Party of the Democratic Revolution predicted the CFE would lose 60 billion of its current 100-billion-peso income.

Adding fuel to the fire, Fox proposed to provide incentives to private companies to build generating plants, financing them by using the national pension fund (the equivalent to Social Security.)

Mexico's electrical rates are quite low by comparison with other countries, although much of its population is so poor that they still can't afford them. In 1999, then-President Zedillo cut much of the rate subsidy that benefited the poor, and rates shot up 30 percent. The CFE runs in the black, and is widely considered both honest and efficient. The Power and Light Company, which has to contend with Mexico City's old infrastructure, is more strapped for cash. But the SME argues that the government subsidizes large users, while cuts in the Power and Light Company's budget have undermined modernization of equipment. The SME also accuses the government of draining its resources by forcing it to buy power from the Federal Electricity Commission, whose prices have increased 298 percent.

The most predictable result of privatization, opponents claim, is that both national companies would be sold off once they were broke, or would be replaced in the market by foreign-owned ones.

New owners would increase profits by raising rates for small customers, while cutting wages, laying off workers, tearing up union contracts and holding down expenses on maintenance. These are not just doomsday predictions--they describe the bitter experience at Mexico's railroads, copper mines, airlines and other state-owned businesses.

If the proposals for privatizing Mexico's electrical system bear an eeiry resemblance to California's disastrous experiment in deregulation, it should come as no surprise. They share some of the same authors. In fact, as Jeffrey Skilling and Ken Lay were setting up shadow corporations to hide Enron's huge US losses in 2001, other Enron executives found time to hobnob with Mexican politicians and design projects in cooperation with that country's industrial elite.

Enron created 64 subsidiaries to operate in the Mexican power market, headquartering most of them in Caribbean tax havens. The company already operates water systems in Quintana Roo state, and its executives advised Fox on energy policy in his transition to the presidency. Following the election, the power axis connecting the big industrialists of Monterrey, some of Mexico's most powerful private businessmen, with their counterparts across the Rio Grande in Texas, paid off for the Texans. On April 4, 2002, Enron Energia Industrial de Mexico received a license from Mexico's Electricity Regulatory Commission to build a 245 megawatt plant in partnership with Vidreria Monterrey and Vidriera Guadalajara (two big glassmakers), Grupo IMSA (a steel and autoparts giant), Industrias Whirlpool and other big Mexican companies.

Other familiar players in the California debacle are also building plants. Bechtel Enterprises, the multinational construction giant based in San Francisco, partnered with Shell Generating Ltd. to set up a company, Intergen Aztec Energy, to build a plant near Mexicali, generating 750 megawatts. Two thirds of the power will be sold in Mexico, and a third exported to California. Sempra Energy Resources, a San Diego generator that figured in the state's power meltdown last year, is building another power station near Mexicali.

Its 600 megawatts will all be sent to the US, and the gas for its boilers will come from the US in a Sempra-built pipeline, making the plant the first true energy maquiladora.

To be continued next issue.